January 21, 2019

Common Insurance Terms

Improve insurance knowledge

Insurance  –  A  contract  in   which an insurance company promises to compensate an insured.

Insurer – The company that accepts risks after receiving premiums and pays claims.

Insured – The person who has taken insurance and pays premium

Agent – A person or a group of people selling insurance on behalf of an insurance company.

Broker – An independent insurance professional licensed under the Insurance Act who advises customers on insurance. In Kenya, most brokers are members of the Association of Insurance Brokers of Kenya (AIBK).

Underwriter – The person who calculates how much premium to charge for various insurance products and accepts or rejects risks on behalf of insurance companies.

Underwriting – The process an insurance company uses to decide whether to accept or reject an application for an insurance cover.

Proposal Form – An application form completed by a potential client for an insurance cover.

Policy – A formal contract /document issued by an insurance company to the insured setting out terms on which the insurance cover has been provided.

Policy period – The period a policy is in force, from the beginning or effective ate to the expiry or end date.

Premium – The amount the insured pays an insurance company. It could be a one off payment or regular installments or as per the agreement with the insurer.

Claim – A request for payment when the insured event occurs as per the terms of the insurance policy.

Excess – The amount the insured pays when making a claim. The amount is specified in the policy.

Liability – The effects of your actions or lack of actions on others while undertaking your responsibilities.

Grace period – The time - usually 31 days - during which a policy remains in force after the premium is due but not paid. The policy lapses after 31 days if premium is not paid.

Lapse – The termination of an insurance policy because premium has not been paid.

Cancellation  Notice  –  Termination of an insurance policy by either the Insurance Company or the insured before the renewal date.

Renewal – Continuation of a policy after expiry date and payment of premium.

First/ Second / Third Party –  The first party is the insured, the second is insurance company and the third party is any other person(s) who may be affected by the insured actions.

Third-party claim – A claim filed by a third party against the first party’s insurance policy.

Sum insured – It relates to the value of the insurance and this is the basis upon which premium is calculated and claim paid.

Co-pay – The percentage of each health care bill people must pay out   of their own pocket. This is under the medical health insurance.

Endorsement – A written agreement expanding or limiting the terms and conditions of a policy.

Rider – An additional benefit on a policy.

Exclusions or limitations – Provisions that exclude or limit coverage of a policy.

Towing coverage – The motor insurance benefit that pays for towing charges when a car cannot be driven. It also pays labour charges, such as changing a flat tyre at the place where the car broke down.

Material misrepresentation – A significant untruth on an application form which, if a company had access to, they might have rejected the application.

Pre-existing condition – A medical problem or illness you had before applying for health care coverage.

Beneficiary – The person, people, or entity who will receive benefits from an insurance policy or an annuity contract.

Accident – An unforeseen, unintended event.

Insurable interest – Any financial interest a person has in the property, person or liability.

Loss history – The number of insurance claims previously made by an insured. An insurance company will consider loss history when underwriting a new policy or considering renewal of an existing policy.

Market value – The current value of the asset you are insuring such as your home, motor vehicle etc.

Risk/Peril  -  An   occurrence   that can cause loss to an individual or a business for example fire, theft, death, accidents and others. A named-peril/ risk policy covers the insured only for the risks identified in the policy. An all- risk policy covers all causes of loss except those specifically excluded.

Refund - An amount of money returned to the insured for over payment of premium or when a policy is cancelled.


Source: AKI Insurance Handbook

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